(Updates with share price in fifth paragraph.)
June 23 (Bloomberg) -- Standard Bank Group Ltd., South Africa’s worst-performing bank stock this year, is poised to return excess capital to investors by increasing dividends, helping to boost its shares, Avior Research Ltd. and Coronation Fund Managers Ltd. said.
Africa’s largest bank in March sold its 36 percent stake in Russia’s Troika Dialog for $372 million. Industrial & Commercial Bank of China Ltd., which owns 20 percent of Standard Bank, agreed to buy Standard Bank Argentina for as much as $800 million, El Cronista newspaper said on June 17, citing people it didn’t identify. Standard Bank spokesman Ross Linstrom declined to comment on the report when contacted by phone yesterday.
Standard Bank has excess capital of about 3 billion rand ($443 million) in South Africa in addition to the Troika sale proceeds and no less than $500 million it could make by selling its Argentine unit, Faizal Moolla, a banking analyst at Avior Research in Cape Town, said in a June 22 interview. “We’re optimistic that they would return a majority of that to shareholders,” said Moolla, who rates Standard Bank a “buy.”
With operations in 17 African countries, Johannesburg-based Standard Bank is focusing on the continent and its 1 billion people to benefit from increased trade and investment banking transactions with other emerging-market nations. The lender last year cut 1,641 jobs in Johannesburg and London to offset lower earnings as lending growth slowed and impairment charges rose.
Standard Bank’s shares retreated for a second day, losing 0.3 percent to 96.10 rand by 10:55 a.m. in Johannesburg, taking losses for this year to 11 percent. Standard Bank’s share-price performance is the worst of the six lenders in the FTSE/JSE Africa Banks Index. That compares with an 11 percent gain by Capitec Bank Holdings Ltd. and 6.9 percent increase by Nedbank Group Ltd., South Africa’s fourth-biggest bank.
Standard Bank will probably gradually lower its dividend cover rather than making a special payout, Moolla said. Standard Bank cut its dividend cover to 1.85 times in 2010 compared with its target of 2.5 times. This approach will leave it with enough capital to fund its expansion plans in Africa, he said.
Further acquisitions in Africa would make sense only if they could generate a minimum return on equity of 20 percent, said Neville Chester, who helps oversee the equivalent of $34 billion at Coronation Fund Managers in Cape Town.
“If they can find somewhere they can generate a decent ROE, then absolutely,” he said.
The sale of its Argentine unit is the right thing for Standard Bank to do following its strategy shift in the wake of the global financial crisis. “Argentina, while a great buy for them, doesn’t fit into their overall strategy.”
Not Meeting Hurdles
Purchases in Africa haven’t met Standard Bank’s “hurdles in the past” and investor returns would be better enhanced by returning capital to shareholders, said Rob Nagel, who helps manage the equivalent of $7.4 billion at Cadiz Asset Management in Cape Town.
“Acquisitions in Africa have been quite expensive,” Nagel said. “Quite a large portion of shareholders would like capital back.”
While the potential of capital being paid out to shareholders will be positive for Standard Bank’s stock, no decision is likely to be made until there is more clarity on global capital requirements, Coronation’s Chester said.
Capital rules for internationally active lenders published by the Basel Committee on Banking Supervision last year require banks to hold core capital equivalent to 7 percent of their risk-weighted assets. At the end of March, Standard Bank had a total capital adequacy of 15.1 percent.
‘Africa at Our Core’
“Our capital ratios are gradually strengthening and would be further strengthened by the disposal of our share in Troika, which should complete by October/November this year,” Finance Director Simon Ridley said in an e-mailed response to questions yesterday.
“With Africa at our core we also need to ensure that sufficient capital is allocated to grow our South African and rest-of-Africa franchise,” Ridley said. “If capital can’t be used it will be returned to shareholders. This will all be considered by our board at year-end but it is clear that we’re in a reasonably strong capital position to support growth.”
The “outstanding issue is the Basel regulations, finalizing what the capital requirements are going to be and how our own regulators apply that locally,” Chester said. “You don’t want to pay capital out and then find you need to raise it again.”
--Editors: Vernon Wessels, Ana Monteiro, Gavin Serkin
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